US: Philadelphia Fed Business Outlook Survey

Thu Jun 18 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 8.0 7.5 to 10.5 15.2 6.7

In the first notable indication of strength of any kind in the manufacturing sector, the Philly Fed index has absolutely surged in the June report, way beyond Econoday's high-end estimate to 15.2 for the strongest reading since December. The gain is confirmed by an identical 15.2 surge for new orders which is the highest reading since November.

Other readings are also positive including an increase for unfilled orders and a big increase in this month's shipments. Another positive is slowing in delivery times consistent with high levels of shipping activity. On inflation, prices paid shows a big jump likely tied to energy costs, though prices received shows only marginal pressure. Showing only a marginal gain this month is employment, yet this may increase in the coming months given the other readings in this report including a nearly 6 point jump in the 6-month outlook to a very positive 39.7 which is the best reading since January.

But is this report an outlier? It certainly isn't confirmed by Monday's Empire State report which lurched into the negative column to minus 1.98. Today's report will focus attention on other Fed manufacturing reports to come including the Richmond report on Tuesday and the Kansas City report on Thursday. Both of these reports, and especially the Dallas report, have been very weak so far this year.

Market Consensus Before Announcement
Philadelphia Fed business outlook survey has, like its front-runner the Empire State manufacturing survey, been offering early signals on each month's weakness in the manufacturing sector. A little less weakness is expected for the June report with the Econoday consensus at 8.0 vs May's 6.7.

The general conditions index from this business outlook survey is a diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey, widely followed as an indicator of manufacturing sector trends, is correlated with the ISM manufacturing index and the index of industrial production.

Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. By tracking economic data such as the Philly Fed survey, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth so that it won't lead to inflation. The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behavior. Some of the Philly Fed sub-indexes also provide insight on commodity prices and other clues on inflation. The bond market is highly sensitive to this report because it is released early in the month and is available before other important indicators.